Dec. 14 (Bloomberg) -- European stocks advanced after yesterday's drop, the biggest in three weeks, left shares near their cheapest in at least five years.

UBS AG, the region's biggest bank by assets, and Royal Bank of Scotland Group Plc climbed for the first time in four days. Centrica Plc led utilities to the sharpest gain in a week. Autonomy Corp. advanced after Citigroup Inc. recommended investors buy shares of the software company.

The Dow Jones Stoxx 600 Index added 0.5 percent to 367.24, limiting the retreat this week to 1.5 percent, as all 18 industries advanced except mining companies and carmakers. Stocks sank the most since Nov. 21 yesterday on concern a plan by central banks to ease the credit squeeze won't be enough to prevent an economic slowdown.

``Valuations are attractive,'' said Philippe Gijsels, senior equity strategist at Fortis Global Markets which manages $62 billion in Brussels. ``It's maybe a good idea to look at some banks.''

The Stoxx 600 is valued at 12.66 times profit, the lowest since at least January 2002, weekly data compiled by Bloomberg show.

The risk of European companies defaulting on their debt fell, according to traders of credit-default swaps. The dollar strengthened the most against the euro since May 2005 after government reports showed U.S. consumer prices and industrial production increased more than forecast last month.

National benchmarks advanced in 12 of the 18 western European markets. France's CAC 40 and Germany's DAX both rose 0.3 percent. The U.K.'s FTSE 100 climbed 0.5 percent. The Stoxx 50 gained 0.5 percent, while the Euro Stoxx 50, a measure for the euro region, added 0.3 percent.

UBS, Royal Bank

UBS increased 1.8 percent to 55.25 Swiss francs. Royal Bank of Scotland, the U.K.'s second-largest bank, advanced 1.2 percent to 439 pence. Barclays Plc, the U.K.'s third-biggest bank, added 1.6 percent to 531.5 pence, rebounding from a two-week low.

Banks advanced as Goldman Sachs Group Inc. raised its outlook on the debt of Citigroup Inc. to ``outperform'' from ``in-line'' after the largest U.S. bank said it will assume the debt of its structured investment vehicles.

Northern Rock Plc, the U.K. lender bailed out by the Bank of England, jumped 6.9 percent to 91.9 pence after Virgin Group Ltd.'s preferred bidder status was removed last night, the Times reported without saying where it got the information.

Olivant Advisers Ltd. threatened to withdraw its offer because it wasn't getting the same access to the banks funding Virgin's bid, the newspaper said.

Centrica

Centrica Plc, the U.K.'s biggest energy supplier, gained 1.9 percent to 371 pence. Scottish & Southern Energy Plc, the second- largest, added 1.2 percent to 1,627 pence.

Centrica will lead other utilities in increasing electricity and natural-gas rates for retail customers next year, after wholesale gas prices rose, Citigroup analysts said.

British Gas owner Centrica is monitoring the wholesale market to determine whether it needs to increase prices, spokesman Andrew Turpin said today in a telephone interview.

Scottish & Southern has ``established a strong reputation for taking a responsible approach to pricing and we'd want to maintain this going forward into 2008,'' spokesman Justyn Smith said by telephone today.

The Stoxx 600 Utilities Index climbed 1.3 percent, the most since Dec. 5 and the biggest advance among the 18 industry groups in the Stoxx 600.

Autonomy, the U.K.'s second-largest software company, rose 7 percent to 867 pence after Citigroup raised its recommendation for the shares to ``buy'' from ``hold.''

Chemical Makers

Ciba Specialty Chemicals AG led chemical makers higher after Citigroup said Dow Chemical Co. may buy a company in the industry. Ciba advanced 1.4 percent to 54.1 francs.

Dow Chemical, which will get $9.5 billion from selling 50 percent of its commodity-plastics unit to Kuwait, may use the cash to buy a specialty-chemical maker as big as Celanese Corp. of the U.S., Citigroup said. Switzerland's Ciba and Brussels- based Umicore also fit Dow's acquisition criteria, the analysts said. Umicore gained 2.9 percent to 157 euros.

Anglo American Plc, the world's second-largest mining company, retreated 3.4 percent to 3,072 pence. Rio Tinto Group, the third-biggest, dropped 2.2 percent to 5,176 pence.

Goldman cut its recommendation on the European mining industry to ``neutral'' from ``attractive.''

Vedanta

Vedanta Resources Plc, India's largest copper producer, lost 1.4 percent to 2,109 pence.

Goldman downgraded shares of the company 54 percent-owned by billionaire Anil Agarwal to ``sell'' from ``neutral'' and added the stock to its ``conviction sell'' list.

``We believe Vedanta is unlikely to be involved in consolidation due to the Agarwal family's large shareholding,'' analysts including London-based Peter Mallin-Jones wrote in a note to investors today.

Ubisoft SA surged 10 percent to 65.57 euros. Europe's second-largest maker of video games raised its revenue and profit margin forecasts, citing record sales of the ``Assassin's Creed'' game.

-- Editors: Stephen Kirkland, Roger Neill.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

Last Updated: December 14, 2007 12:57 EST